Public pension crisis could have silver lining

This article was originally published in The Garden Island on Thursday, Nov. 22, 2018.

Soaring public pension and health benefit costs will be slamming Hawaii’s county governments in coming years, forcing them to consider cutting important government services or increasing taxes — neither of which are attractive options.

But the dark cloud of the state’s unfunded liabilities crisis could have a silver lining — if it encourages state and county policymakers to consider ways to cut their expenses while yet maintaining the quality of life we all want for our communities.

Such ways could involve greater public-private partnerships, less regulation of emerging businesses, more opportunities for entrepreneurs, and, of course, letting isle residents keep more of their hard-earned money, instead of taxing it away from them and squandering it on ill-conceived and poorly managed government projects and programs.

The sad fact is that the state’s Employee Retirement System (ERS) and the Employer Union Trust Fund (EUTF) have, by conservative estimates, saddled Hawaii taxpayers with $26 billion in unfunded liabilities, despite the best efforts of their recent managers to restore solvency to those programs.

Those unfunded liabilities have increased through the years because of increased health care costs, more benefits promised to public workers and the usual political meddling. Between 2005 and 2015, pension and health care benefits in Hawaii increased five times faster for government workers than for workers in the the private sector.

Hardest hit by the coming fiscal crisis will be Kauai County, which plans to divert a full 15.6 percent of its $218 million operating budget this fiscal year to help pay down the ERS and EUTF debts, the highest percentage among Hawaii’s counties.

In dollar amounts, Kauai’s payments are going up from $29 million in fiscal 2018 to $34 million this fiscal year, or $472 for each person in the county. And the payments are expected to keep increasing beyond that.

The steeper payments for all the counties were required by the state Legislature for the EUTF in 2013 and the ERS in 2017, as part of its effort to reduce the fiscally dangerous levels of the unfunded liabilities of the two state programs. Of course, the Legislature’s incessant meddling in the operations of the systems is another reason for the programs being in crisis to begin with, and its efforts to shift the costs to the counties is unfortunate.

Nevertheless, the crisis does demand action of some sort, though not necessarily cutting services or raising taxes.

Joe Kent, Grassroot Institute of Hawaii’s executive vice president, advised Kauai County Council members at a council session in September that among the easiest ways to help reduce the pain of these increased payments would be to rein in excessive overtime pay and put a stop to the well-known pension-spiking schemes.

Kent said another relatively easy path would be to offer new-hire public employees alternative pension plans that would balance promises with contributions made into the system. The point would be to ensure that the benefits promised to the current state and county workers can be paid while still making it attractive for talented individuals to work for our state and county governments.

Maybe not as easy would be to reimagine completely how government services should be delivered in the islands. In particular, how we possibly could rely more on businesses, entrepreneurs, nonprofits and public-private partnerships, to help make up for the damage imposed by the current fiscal crisis — and at a lower cost.

Again, the state’s unfunded liability crisis could be an opportunity to actually improve how government operates in Hawaii, but only if state and county lawmakers are willing and courageous enough to think creatively about it.

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